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iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ $39.73)
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Vanguard Dividend Appreciation FTF (VIG $214.39)
I am a dividend investor, almost totally in higher paying blue chips and sector specific equities. I rely on those payments for my income. However, I am considering an etf as a possibility to lower risk , but am not very familiar with the offerings. A brief look about wasn't encouraging, as it seems that often the dividends paid may decrease over time, and not necessarily in sync with govt interest rates as you might expect. As an example, I thought XRE would be a good one, paying over 5%. Their distribution 10 years ago was 8 cents. The most recent was 6 cents. This does not keep up with inflation, a key part of my requirement.
All that being said, can you suggest Canadian etfs that pay a high dividend, one that increases with inflation? Thanks for your ideas! ... Paul K
ETFs pass on dividends to unit holders, so if the dividends on the underlying securities increase, so too should the ETF's dividend. That being said, some of the higher-yielding ETFs, especially covered call funds and some others, can pay out a portion of their dividends as return of capital, and this can result in lower net asset value, and a lower total return as expected. When looking at ETFs, then, we think it is important to look at total returns and not just yields. XRE, for example, has a five-year annualized return of 6.39%. The distribution was decreased in May, but it was increased in January, and today's rate is higher than it was last year. In an inflationary environment, dividend stocks tend to be hit. So while dividends might increase, NAV could decrease, especially if rates rise to combat inflation. For the dilemma in the question, we migth take a look at dividend appreciation ETFs, such as CDZ in Canada and VIG in the US. CDZ, for example, is up 64% in the past five years.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in VIG.